Nilesh Shah of Kotak Mutual Fund believes that the cash balances with mutual funds will increase marginally due to the record equity mutual fund inflows in August.

In the current financial year, equity funds have seen net inflows of over Rs 61,421 crore, suggests the data from AMFI. (Image: PTI)

Nilesh Shah of Kotak AMC says that it will be a challenge for the mutual fund industry to handle record inflows to the tune of Rs 27,000 in the equity mutual funds for the month of August. In conversation with CNBC TV18, he said “It’s a challenge to manage Rs 27,000 crores of investments in a month. We are focused on very niche segment of the market.” Even as equity markets were down by around 2% in August, equity mutual funds saw record inflows of Rs 20,362 crore, while total assets of the mutual fund industry touched a record high level and crossed the Rs 20 lakh-crore mark last month. After including other categories such as balanced funds and ETFs, the figure tops Rs 27,000 crores.

The expert believes that the cash balances with the funds are likely to increase marginally due to this massive inflow. In the current financial year, equity funds have seen net inflows of over Rs 61,421 crore, suggests the data from Amfi. For want of opportunities to deploy excess cash, industry players such as BlackRock Inc’s Indian unit in February shut its DSP BlackRock Micro Cap Fund to new investors. In April this year, Motilal Oswal Asset Management Co had stopped accepting new cash for its Next Trillion Dollar Opportunity Strategy, which mostly invests in small and mid-cap stocks, because it says the rally has made valuations untenable, according to a bloomberg report.

S Ramesh of Kotak Investment banking believes that India Inc is set to raise Rs 1 lakh crore in the next 12 months.Talking specifically about mutual funds, he told ET Now last week, “ Out of the total inflows, nearly one-third is invested in the financial services space.” However, with the insurance companies entering the game, the mutual funds are likely to change their asset allocation. S Ramesh points out, “Close to 33% of the domestic and international money is in the financial services. My judgement is 5-7% out of this will now move to the insurance sector. So, it’s exactly what the doctor ordered.”

A report by Deutsche bank last month underscored how the rising component of Systematic Investment Plans (SIPs) is changing the profile of Indian savings towards equity investments. “The accelerating momentum of inflows into the equity schemes of mutual funds indicates that the financialisation of the domestic savings cycle in India — which began in earnest in 2014 — is becoming deeply entrenched,” Deutsche Bank said in a research note last month.